Canola market shows signs of life

Canola shipments have picked up after a long lull, says an industry official.

China has started to purchase a lot of new crop cargoes as well as Canadian canola oil, said Glen Pownall, managing director with Peter Cremer Canada Ltd.

The rapeseed oil futures market in China “took off” last week and some of the big buyers with the resources to hedge bought both Canadian canola seed and oil.

Prior to the sudden renewed interest from China it had been a tough slog in the canola sector.

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“It (has been) just incredibly quiet the last few months. Just dead,” said Pownall.

Canadian Grain Commission statistics show that 906,900 tonnes of canola was exported in April, down from just over one million tonnes the previous April.

But Pownall said those statistics have been “way off” for the past couple of months. There has been no new business on the books. Companies were simply executing old sales.

Statistics Canada estimates there was 9.1 million tonnes of canola left on farms and in the grain handling system as of March 31, which is up 14.4 percent from last year.

Pownall believes farmers were holding off on selling the crop due to dry conditions at seeding, thinking prices were bound to move higher.

He wonders if farmers will release their grip now that much of the Prairie region has received some rain.

Pownall worries about new crop prospects due to the potential for a big carryout from 2017-18, more 2018 acres than Statistics Canada is forecasting and waning demand prospects in certain key markets.

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The European Union is importing more soybeans than normal. Soybean crush margins are up due to strong soybean meal prices caused by Argentina’s drought.

“They’re crushing way less canola. There’s going to be no canola shipments from Canada to Europe (from) April forward. Nothing,” he said.

In 2016-17 Canada shipped 770,000 tonnes of canola to the EU, this year sales have dropped to 438,000 tonnes and next year Pownall is forecasting 100,000 tonnes.

Pakistan is another country where Canada is expected to lose market share in 2018-19 due to stiff competition from cheaper canola out of the Black Sea region and to exports from Australia, which has a huge carryout.

Pownall doesn’t think the other traditional markets like China, Japan, Mexico and the United States will be able to mop up Canada’s supplies.

The biggest upside potential is that China has depleted its government reserves of rapeseed oil but Canada’s exports to that market are limited because Canadian canola is only approved for 16 crush plants due to concerns over blackleg disease.

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There is a development that could reignite EU demand for Canadian canola. Reuters reports that the EU is expected to erect tariffs against biodiesel from Argentina in September or October.

That would put a halt to 600,000 tonnes of soybean biodiesel entering the market annually and potentially lead to an increase in rapeseed/canola biodiesel.

“I think it’s absolutely an opening for Canadian canola,” said Ian Thomson, president of Advanced Biofuels Canada.

It could also lead to increased sales of Canadian biodiesel to that market. Offsetting that opportunity is an uptick in Argentinian biodiesel exports into Canada. Two shipments have come in this year.

Thomson said the Canadian industry is talking to government about how to respond to what other countries have determined is unfairly subsidized product.

Another longer-term opportunity for canola in the EU is the European Parliament’s decision to ban palm oil biodiesel starting in 2021.

Palm oil is the second most popular biodiesel feedstock in the EU. Biodiesel manufacturers used 2.6 million tonnes of the oil in 2017, according to a report by the U.S. Department of Agriculture.

Some of that void could be filled by rapeseed/canola oil biodiesel, which is the most popular biodiesel in the EU with 6.2 million tonnes of annual consumption.

The draft policy needs agreement from member states and the European Commission before it becomes law.